Jack Nicas and Susan Carey broke the news on Oct. 30 that American Airlines parent AMR Corp. and US Airways Group Inc. are preparing a settlement proposal to the U.S. Justice Department that would include offers to give up slots at Reagan National Airport, according to two people familiar with the process.

American Airlines parent AMR Corp. and US Airways Group Inc. are preparing a settlement proposal to the U.S. Justice Department that would include offers to give up slots at Reagan National Airport, according to two people familiar with the process.

The Justice Department sued in August to block the airlines’ proposed merger, and the antitrust case is set to go to trial on Nov. 25–a high-profile court contest that holds big risks for both sides. The two airlines and the Justice Department recently agreed to consult a court-appointed mediator to negotiate toward a settlement. The parties also have said they remain open to resolving the case outside of court.

One of the people cautioned that the two airlines still are expecting to go to trial. Richard Parker of O’Melveny & Myers LLP, a lawyer for US Airways, also said Wednesday the airlines are ready for trial and anxious to make their case.

AMR Chief Executive Tom Horton, at a conference in New York on Tuesday, reiterated his company’s belief that a settlement is better for both sides and that it is the responsibility of the airlines to make a strong settlement proposal.

The airlines are hoping to offer a package of divestments to the regulators, focused largely on relinquishing some slots at Reagan National Airport. Industry analysts have discussed the possible concession of Reagan slots since the time the two carriers announced their merger plans in February. If they combined, the airlines would control two-thirds of the flights from the slot-controlled airport just outside of Washington D.C.

The possible proposal could also include other concessions, said the other person, but much remains to be negotiated and any proposals could be rejected.

Still, the airlines may struggle to resolve the Justice Department’s concerns simply with divestments. The government’s antitrust suit makes sweeping, fundamental arguments against the merger, including how it could harm competition, reduce air service and increase fares.

The suit also specifically mentions that the merger would leave too many slots at Reagan with the combined carrier, but it also lists more than 1,000 routes where regulators believe the merger would significantly harm competition.

The Justice Department’s antitrust chief, Bill Baer, previously said the government was willing to listen to settlement proposals, but insisted the department believes the “right solution” was a court injunction to block the deal. A department spokeswoman declined to comment Wednesday.

If combined, American and US Airways would be the largest carrier in the world by traffic, vaulting ahead of current No. 1, United Continental Holdings Inc., and No. 2, Delta Air Lines Inc. American and US Airways contend a merger between them would serve as a counterbalance to United and Delta, which have expanded through recent combinations, as well as offering passengers more choice and a bigger route network.

-Brent Kendall contributed to this article.

Write to Jack Nicas at Jack.Nicas@wsj.com and Susan Carey at Susan.Carey@wsj.com

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